Businessweek Archives

Did Sears Take Other Customers For A Ride?

August 02, 1992

Top of the News

DID SEARS TAKE OTHER CUSTOMERS FOR A RIDE?

Just months ago, Michael J. Stumpf was a walking advertisement for Sears Roebuck & Co. "We had an all-American relationship with Sears," said Stumpf, a 32-year-old industrial video producer, at a July 21 Senate subcommittee hearing looking into auto fraud. But when his fiancee brought their 1987 Ford to a Sears Automotive Center for an advertised $89.99 strut job, she ended up with a $650 repair bill instead. Fumes Stumpf: "Trust shaken is not easily gained back."

Stories like Stumpf's are beginning to sound familiar as investigations into sales abuses at Sears' auto centers continue. What has not been revealed is that the same pressures that may have led to abuses in the auto centers exist in other areas of Sears' vast empire. Interviews with 18 current and former auto employees, major-appliance salespeople, and Allstate Insurance agents all reveal an atmosphere in which employees feared getting fired if they didn't meet sales quotas. Some even say they felt pressured to cheat to keep their jobs.

Sears' top executives say they never knowingly approved or endorsed such practices and dismiss such talk as anecdotal evidence from a few disgruntled employees. "There is a distinct possibility that there are people managing that way out there," says Forrest R. "Woody" Haselton, who became the auto group's head in 1989 and was promoted to president of the $31 billion Sears Merchandise Group in January. "But it is not systemic. And when we find it, we react against the people who are managing that way."

`TOTALLY INEVITABLE.' Government investigators, law enforcement officials, and private attorneys representing former Sears auto center employees contend that such policies add up to systemic fraud. "There was a deliberate decision by Sears management to set up a structure that made it totally inevitable that the consumer would be oversold," charges Roy Liebman, a deputy Attorney General in California.

Of course, commissions and quotas are a routine part of the retail business. But at the auto centers, management checks designed to prevent overselling may have been missing. And since the same policies exist in other Sears' divisions, management oversight may be lacking in those areas, too. In March, Sears changed the pay structure for its retail salespeople, cutting base salaries and emphasizing commissions instead. At the same time, the company may have pushed employees too hard to sell maintenance agreements on big-ticket appliances. These agreements generate up to 50% of annual store earnings, some employees say, and can cost more than 35% of the appliance's value. One 30-year Sears salesman in Sacramento, who retired in February, says he received more than a dozen letters from his manager over the past two years stating that he would be fired if he didn't boost the number of agreements he sold. "An unhappy salesman who figures he's been shafted is going to shaft someone else," he says. Ruth Kaylor, a saleswoman in Sears' Vernon Hills (Ill.) store, agrees: "The pressure is much greater today than it used to be."

NO QUOTAS. Allstate agents also say they've come under pressure since 1989 to write more policies. The Sears subsidiary got rid of production quotas several years ago because of concerns that they would force agents to cut corners, say several agents, and Allstate's vice-president for corporate relations, Kevin Sullivan, says they are not used. Yet in recent months, some agents say they've been fired for not meeting sales quotas.

One is Lawrence R. Melody, who joined Allstate as an agent working in a booth in a Florida Sears store in 1986. He says that although the amount of money Sears paid on his clients' claims was well below the company average, he was terminated this month for low production. Instead of selling $12,093 worth of personal property insurance in four months, Melody sold $10,760. Similarly, Clifton W. Weller III, a Baltimore agent who joined Allstate in late 1990, says he was fired for not meeting a $600 monthly quota for life insurance premiums. He has filed a complaint with Maryland regulators, charging that his manager pressured him to ignore underwriting guidelines to close a sale. Allstate's Sullivan says it's company policy not to comment on "specific employee matters."

Allstate agents nationwide are concerned about reports of a number of agents who have received official warnings in recent months that if they don't bring in a certain amount of premiums, they'll lose their jobs. Says Jim Cason, president of an Allstate agents group: "If the reports are true, I honestly believe it's bottom-line management at its worst."

What has gone wrong at a company that was once one of the nation's most enlightened employers? The answer may be as simple as profit pressure (table). District and regional heads are competing against one another to rack up the biggest profit gains--and keep their jobs.

Some of those managers, suggests a former top Sears executive, may have become overzealous in pushing sales performance. "We talked about the pressure, pressure, pressure to get the dollars," says Jerry C. Waddy, who worked in Sears' San Bruno (Calif.) store before he was fired, he says, for not meeting his quota of 16 oil changes a day. Waddy says that on the advice of his manager he started cheating in the final week to try to save his job. He's now seeking $1 million from Sears in a wrongful discharge suit. Sears spokesman Gerald E. Buldak says the company is taking the charges "very seriously."

BETRAYED TRUST. Haselton and others maintain they've built checks into the system, such as shopping audits and customer response cards, that help prevent overselling. But Sears will probably have to explain all this in court. Although it settled charges with New Jersey on June 21 by agreeing to pay $200,000 to the National Association of Attorneys General for an auto repair industry reform fund, California, Florida, and Alabama are continuing their investigations. Sears General Counsel David Shute says that at least a dozen auto-related class actions have been filed.

And what about such once loyal customers as Michael Stumpf and his fiancee, Jane Doyle? "I won't go to a Sears auto center again," vows Doyle. It may not be long before Sears hears the same bitter words from appliance and insurance customers, too.Julia Flynn in Chicago, with Christina Del Valle